Inside Microfinance
October 23, 2009

Microfinance leaders from around the globe conferred this week to promote the Smart Campaign -- a global effort to get out ahead of any problems that might threaten developments in microfinance.

It's a smart idea that should help foster microfinance projects everywhere. The Smart Campaign is the new moniker given the Campaign for Client Protection in Microfinance, which was announced in 2008 by a group that included the policy and research center CGAP and a handful of leading microfinance organizations.

“It's important for microfinance institutions to get this right,” Elizabeth Rhyne, Managing Director of the Smart Campaign, commented at the start of a October 21 conference call with reporters and industry experts. “It's a sacred trust [between microfinance institutions and borrowers] and we need to safeguard it.”

The October 21 call was one of two briefings this week that brought together diverse groups of microfinance leaders to discuss and explain a set of principals intended to safeguard clients and protect microfinance institutions (MFIs). The Smart Campaign, which is managed by the Center for Financial Inclusion at Accion International, includes as members more than 700 MFIs, networks and associations, investors and donors.

"Even in the midst of global economic turmoil, our industry continues to expand rapidly all over the world," said Vikram Akula, Founder and Chairperson of SKS, the largest microfinance provider in India, and a member of the Campaign. "This is an encouraging trend, but it also underscores the critical importance of making sure our institutions do not forget that serving our clients in a respectful and transparent manner is the primary reason we are in this business to begin with."

Microfinance is fast becoming a world economic force, contributing $5 billion in cross-border investments to the global economy over the past 5 years. But as experts were quick to point out during last week's call, the U.S. subprime mortgage meltdown that triggered the global financial crisis last year demonstrates the importance of accountability, transparency and security in financial services.

To that end, the Smart Campaign has been working on tools MFIs and others can integrate into daily business operations. These include thus far: an institutional self-assessment too, an investor toolkit, and the first in a series of Smart Notes on best practices. The Campaign is being managed by the Center for Financial Inclusion at Accion International.

"Not only will these tools help microfinance practitioners serve their clients in a more transparent and mutually productive way, the tools will give investors and donors the information and resources they need to ensure that potential investees' performance on client protection is an integral part of their due diligence," explained Elizabeth Littlefield, director of the World Bank and CGAP CEO. (CGAP is housed at World Bank headquarters.)

The Client Protection 6

The Smart Campaign has at its core six principals. Although they may seem at first "no brainers," these six principals may have different implications due to the diversity of markets and provider communities.

• Avoid Over-Indebtedness -- borrowers must demonstrate an adequate ability to repay loans
• Transparent Pricing -- all fees, terms and conditions must be disclosed and understood
• Appropriate Collection Practices -- no abusive or coercive debt collectors
• Ethical Staff Behavior -- MFIs and related organizations need to set strong ethical standards for interactions with clients and have in place procedures for identifying and rectifying corruption and other ethical matters
• Mechanisms for Redressing Grievences -- that ensure timely and complete resolution of client problems
• Privacy -- it's critical that MFIs protect personal client information, and that client data not be used for purposes other than making lending decisions without express client approval.

It's a great opportunity to get out in front of any problems that might arise, and to provide a model for global banking," said Rhyne of the campaign's objectives.

Source URL: http://www.insidemicrofinance.com/_cms/_blogs/SnartCampaign